Tuesday, January 16, 2018

Quote of the Day

Jack Schwager, in his instructive and comprehensive A Complete Guide to the Futures Market makes the point that we've been stressing of late in client review meetings: That while our fundamental analysis says the overall setup remains bullish for equity markets, it's only useful in terms of assessing the prospects for the intermediate and longer-term horizons. We should always expect frequent counter-trend moves and corrections even under the best of conditions.

Schwager also suggests we look out for those times when a development that would otherwise confirm the present trend inspires a market move opposite of what the setup, or the prevailing trend, would've otherwise suggested. Which is a phenomenon we're all too familiar with and, thus, sensitive to. The market's recent propensity to rally on good news and shrug off the bad speaks to the strength of the underlying fundamentals, and confirms our macro view. That said, we absolutely anticipate that while this bullish setup remains there will be days, weeks and months where "bad" news indeed inspires a break in the bullish action; which, frankly, would be a healthy pause we long-term investors should welcome:

....the key point to keep in mind is that fundamental analysis is primarily a tool for forecasting intermediate or long-term price swings and should not be used as a timing indicator. The only exception to this basic premise is that a counter-to-anticipated market response to fundamental information could be viewed as a contrarian trading signal (e.g., a bullish fundamental development would have bearish near-term implications if it failed to elicit the anticipated positive price response)."